Dual-track protection of Trade secrets and patents: Strategies and Case Studies for Preventing Infringement of Core Technologies in Enterprises

The report of the 20th National Congress of the Communist Party of China emphasizes "concentrating efforts on original and leading scientific and technological breakthroughs". In fact, core technologies are not only the "vital point" of enterprises but also the "ace in the hole" in market competition. However, from the case of Jiaxing Zhonghua Chemical, whose "vanillin" technical secrets were leaked and infringed upon, resulting in a loss of market share over a decade and a compensation of 159 million yuan that was hard to make up for the actual losses; to the case of Geely, whose new energy vehicle chassis technology was "poached" and misused, receiving a compensation of 637 million yuan but facing difficulties in enforcement due to the bankruptcy of WM Motor - these real "billion-yuan infringement cases" all warn us that if core technologies lack systematic protection, no matter how high the R&D investment is, it may eventually end up benefiting others.

How can a company transform its technological advantages into an unstealable and unbreakable competitive barrier? This article will, by combining typical cases, analyze how enterprises can build an "intellectual property moat" in advance from the identification and evaluation of core technologies, dual-track protection of trade secrets and patents, to the flexible application of dynamic protection strategies, so that technology can truly become a "ballast stone" for sustainable development.

Two classic cases of infringement of technical secrets:

Case One: Infringement Case of Misappropriating the Trade Secret of "Vanillin" ((2020) Supreme People's Court of Intellectual Property Civil Appeal No. 1667)

Since 2002, Jiaxing Zhonghua Chemical Company and Shanghai Xinchen New Technology Co., Ltd. (hereinafter referred to as "Shanghai Xinchen Company") have been cooperating. They jointly developed a new technology process for producing "vanillin" using glyoxylic acid. This process has won several awards. Based on this process, before the infringement in this case occurred, Jiaxing Zhonghua Chemical Company had occupied about 60% of the global "vanillin" market share. Despite the fact that Jiaxing Zhonghua Chemical Company and Shanghai Xinchen Company protected the glyoxylic acid method for producing "vanillin" as a trade secret, they still failed to prevent the leakage of the trade secret. In 1991, Fu Moumou, one of the original defendants in this case, entered Jiaxing Zhonghua Chemical Company and served as the deputy director of the "vanillin" workshop of the company since 2008. On April 12, 2010, Fu Moumou disclosed the "vanillin" trade secret to Wang Long Group Company's supervisor and the chairman of Ningbo Wanglong Technology Co., Ltd. (hereinafter referred to as "Wanglong Technology Company"), Wang Moumou, after receiving remuneration from Wang Long Group Company. On April 15, 2010, Fu Moumou submitted a resignation report to Jiaxing Zhonghua Chemical Company and left the company in May of the same year to work for Wanglong Technology Company. Since June 2011, Wanglong Technology Company has started to produce "vanillin" and quickly became the third largest "vanillin" manufacturer in the world. In 2015, Firmenich Wanglong Flavors (Ningbo) Co., Ltd. (hereinafter referred to as "Firmenich Wanglong Company") was established and has been continuously using the "vanillin" production equipment contributed as equity by Wanglong Technology Company to produce "vanillin". As the technology secrets used by Wang Long Group Company, Wanglong Technology Company and Firmenich Wanglong Company were illegally obtained without substantial research and development cost input, they were able to sell "vanillin" products at a lower price, which had a significant impact on Jiaxing Zhonghua Chemical Company's existing international and domestic markets.

On May 23, 2018, Jiaxing Zhonghua Chemical Company and Shanghai Xinchen Company filed a lawsuit with the Higher People's Court of Zhejiang Province, claiming that Wanglong Group Company, Wanglong Technology Company, Firmenich Wanglong Company, Fu Moumou and Wang Moumou had infringed upon their "vanillin" technical secrets and requesting the court to order the above-mentioned defendants to cease infringement and compensate 502 million yuan.

On April 24, 2020, the Higher People's Court of Zhejiang Province made a first-instance judgment, determining that the Wanglong Group Company, the Wanglong Technology Company, the Firmenich-Wanglong Company, and Fu Moumou had infringed upon some of the technical secrets involved in the case. The court ordered them to cease the infringement, compensate for economic losses of 3 million yuan, and pay 500,000 yuan for reasonable legal expenses. Additionally, the Higher People's Court of Zhejiang Province had issued an interim injunction during the lawsuit, ordering the Wanglong Technology Company and the Firmenich-Wanglong Company to stop using the involved technical secrets to produce "vanillin". However, the Wanglong Technology Company and the Firmenich-Wanglong Company did not actually cease their infringing activities.

On February 26, 2021, the Intellectual Property Court of the Supreme People's Court of China made a second-instance judgment on the appeal case of the dispute over the infringement of technical secrets between Zhejiang Jiaxing Zhonghua Chemical Co., Ltd. (hereinafter referred to as "Jiaxing Zhonghua Chemical Company") and others and Wanglong Group Co., Ltd. (hereinafter referred to as "Wanglong Group Company") and others. The court ruled that the defendant, Wanglong Group Company and others, should compensate the right holders of the technical secrets 159 million yuan for infringing all the technical secrets involved.

This case is the one with the highest amount of judgment in the field of intellectual property rights before the next case is ruled.

Case Two: Geely's Intellectual Property Dispute Lawsuit Against WM Motor for a Record Claim of 2.1 Billion Yuan ((2023) Supreme People's Court Intellectual Property Civil Appeal No. 1590)

The case originated in 2016 when nearly 40 senior executives and technical personnel from Chengdu Geely Auto, a subsidiary of Geely Group, successively resigned and joined WM Motor and its affiliated companies. Among them, 30 people joined the new company immediately after leaving in 2016. In 2018, Geely Group discovered that WM Motor had used the above-mentioned former employees as inventors or co-inventors to apply for 12 utility model patents based on the technology secrets related to the application of new energy vehicle chassis and 12 sets of chassis component drawings and digital model technology secrets they had come into contact with and mastered in their previous company. Moreover, without a legitimate source of technology, WM Motor Group quickly manufactured and launched the WM EX series of electric vehicles, suspected of infringing on Geely's technology secrets involved in the case. Geely filed a lawsuit with the Shanghai High People's Court, requesting that WM Motor be ordered to stop infringing on the technology secrets involved in the case and compensate Geely for its economic losses and reasonable expenses for rights protection totaling 2.1 billion yuan.

The court of first instance held that, based on the parties' pleadings and the evidence on record, the main issues in this case are: (1) whether the Ji party is the right holder of the commercial secrets to be protected; (2) whether the technical information requested to be protected by the Ji party falls within the scope of commercial secrets protected by law; (3) whether the Wei party has committed an act of infringing upon commercial secrets; and (4) whether the Wei party should bear civil liability and, if so, how such liability should be borne.

The appellate court summarized the key points of dispute as follows: (1) Whether the technical secrets claimed by Ji's side should be protected by law and whether Ji's side can file this lawsuit regarding the technical secrets; (2) Whether Wei's side has infringed upon the technical secrets of Ji's side; (3) If Wei's side is found to have infringed, how to determine the civil liability it should bear in accordance with the law, including ceasing the infringement and compensating for losses.

On June 14, 2024, the Intellectual Property Court of the Supreme People's Court of China issued the final judgment in the intellectual property dispute case where Geely sued WM Motor for a staggering 2.1 billion yuan in damages. The Supreme People's Court overturned the first-instance judgment and ordered WM Motor to immediately cease disclosing, using, or allowing others to use the involved new energy vehicle chassis application technology and the technical secrets of twelve sets of chassis component drawings and digital models of Geely. WM Motor was also ordered to compensate Geely for economic losses amounting to 637,596,249.6 yuan and 5 million yuan for reasonable expenses incurred in stopping the infringement.

This case has become the one with the highest compensation awarded in domestic intellectual property infringement disputes up to now.

Let's reconstruct the infringement model:

Original images may not be used without authorization.

These two cases are among the ones with relatively high compensation amounts in intellectual property infringement cases. However, in reality, as mentioned at the beginning of this article, from a business perspective, these were not "victories" for the plaintiffs. In the first case, although the plaintiff was awarded 159 million yuan in compensation, it is also important to note that the infringement began in 2011, the plaintiff filed the lawsuit in 2018, and the court made the final judgment in 2021. The infringement lasted for over ten years, and the trial spanned more than three years. The impact on the plaintiff included economic losses due to a decline in market share, as well as the cost of time and energy. The actual losses incurred by the plaintiff may have far exceeded the awarded compensation. In the second case, although the court supported the economic loss of 637,596,249.6 yuan and awarded 5 million yuan for reasonable litigation costs, as of October 2023, WM Motor has accumulated debts of 20.367 billion yuan, with assets amounting to only 3.988 billion yuan, and has entered the bankruptcy reorganization process. It has 21 records of being a defendant and over 100 million yuan in unexecuted amounts. This means that the plaintiff, Geely, may not be able to actually collect the corresponding amounts. However, the time consumed over the years, the impact on market share, and the actual costs of litigation have undoubtedly been losses for Geely.

So, how can we nip potential infringements in the bud before technology leaks or infringements occur? The key actually lies in advancing protection to the entire cycle of technology research and development and application, and building a strong defense line with early small investments.

Taking the "vanillin" case as an example, if Jiaxing Zhonghua Chemical had adopted stricter control measures when Fu Moumou refused to sign the confidentiality agreement, such as restricting his access to core technologies, initiating non-compete restrictions earlier, or marking the process as a level-I core technology in the "technical asset list database" during the research and development stage and adopting a combined protection approach of patent, trade secret and filing, it might have been possible to cut off the source of technology leakage. Looking at the case of Geely v. WM Motor, if the enterprise had strengthened the signing of technology integrity confirmation letters when core technical personnel left, imposed more rigorous confidentiality obligations on employees who had access to chassis technology, or isolated and marked key drawings and digital model information as dual-protected by trade secret and patent through dynamic hierarchical management during the research and development stage, it might have significantly reduced the risk of technology being disassembled and misappropriated.

The compliance costs of early protection are essentially an insurance investment in the value of technology: establishing a technology asset inventory, assessing the level of core technologies, signing classified confidentiality agreements, setting up digital watermarks for tracking, etc. The investment in these measures is far lower than the market loss after infringement occurs and the time cost of years of litigation. It can also avoid the helplessness of "winning the lawsuit but not getting compensation".

After all, a true "intellectual property moat" is never built when the enemy is already at the city gates - but rather, from the very first day a technology is born, it is endowed with a natural attribute of being "unstealable and indestructible" through a systematic protective logic. So let's take a look together at how to make early layout and defense.

Original images may not be used without authorization.

1.Enterprises identify key technologies.

Assessment and classification protection

Enterprises can determine through technical analysis and market research which technologies are the key factors that distinguish them from their competitors and which ones play a crucial supporting role in their long-term development strategies. Core technologies can be unique production processes, proprietary software algorithms, or innovative product designs. For instance, for a pharmaceutical company, its newly developed drug formulas and production processes are core technologies, while for a mechanical manufacturing company, its specific mechanical devices are its core technologies.

(1) Establish and sort out the technical asset inventory database

Sort out the technical modules by product line/research and development project, for example, for new energy vehicle enterprises, it can be decomposed into battery management systems, heat pump technology, autonomous driving algorithms, etc. Use patent mapping tools to mark the technical points of the applied-for patents, and simultaneously mark the unpatented process technologies. Trace the source of the technology, distinguish the self-developed technologies that need to be protected as priorities, and conduct compliance reviews on the open-source/authorized imported technologies. Verify the technical evolution path of the imported and improved iterative technologies from overseas.

(2) Establish an assessment matrix to identify core technologies

Based on different scores, they are respectively included in core technologies, listed as important technologies, or classified as ordinary technologies.

(3) Implement hierarchical and categorized management through the dynamic moat mechanism.

Establishing a protection matrix to classify and protect technologies of different levels:

2.Specific protective measures

The protection of core technologies is not limited to a single form of protection such as patent protection or trade secrets. To build a more robust firewall, in practice, multiple protection methods are often used in combination. Each protection method has its own advantages and corresponding shortcomings. The development models of others can be referred to but must not be directly copied. What suits oneself is the best.

(1) Protection of Trade Secrets

The well-known Coca-Cola formula is protected by trade secrets. Another example is Lao Gan Ma, the Guiyang Nanming Lao Gan Ma Flavor Food Co., Ltd. The patents under its name are all design patents for outer packaging and some utility models, and no patent has been applied for the formula. The advantage of protecting by trade secrets is that the scope of protection is wide, such as technical information, business information, formulas, programs, designs, process flows, research and development data, customer lists, etc. However, it also has disadvantages. In litigation, trade secrets that have not been filed for record often need to be judged first whether they belong to trade secrets. As can be seen from the case cited at the beginning of the article, such judgment is often one of the focal points of the case.

From the National Intellectual Property Administration

The legal protection basis for trade secrets is:

Article 9 of the Anti-Unfair Competition Law stipulates that business operators shall not engage in any of the following acts that infringe upon trade secrets:

(1) Obtaining the trade secrets of the right holder by theft, bribery, fraud, coercion, electronic intrusion or other improper means;

(2) Disclose, use or allow others to use the trade secrets of the right holder obtained by the means mentioned in the preceding item;

(3) Violating the obligation of confidentiality or the rights holder's requirements for keeping business secrets confidential, disclosing, using or allowing others to use the business secrets they have in their possession;

(4) Inciting, inducing or assisting others to violate confidentiality obligations or the rights holder's requirements for keeping business secrets, to obtain, disclose, use or allow others to use the rights holder's business secrets.

Where any other natural person, legal person or unincorporated organization other than the operator commits any of the acts of infringement as mentioned in the preceding paragraph, it shall be deemed as an infringement of trade secrets.

Where a third party knows or should have known that an employee, former employee or other entity or individual of the right holder of a trade secret is committing any of the acts listed in the first paragraph of this Article, but still acquires, discloses, uses or allows others to use such trade secret, it shall be deemed as an infringement of the trade secret.

The term "trade secret" as used in this Law refers to technical and business information, etc. of commercial value that is not known to the public and for which the right holder has taken corresponding confidentiality measures.

In summary, there are three points. First, non-publicity: it is not known to the public (the information is not generally known or easily accessible to relevant personnel in the field); second, commercial value: it can bring economic benefits or competitive advantages (direct value/indirect value); third, confidentiality measures: the enterprise has taken reasonable protection measures (physical isolation, permission classification, technical protection measures, etc.).

Operation suggestions:

Confidentiality Agreement

Confidentiality agreements should cover employees, suppliers, partners, etc. Different approaches should be adopted to protect different personnel.

For employees, not only should the scope of trade secrets, the confidentiality period and confidentiality obligations be clearly defined in the labor contract, but also non-compete agreements should be signed with those who can access core technologies. For instance, it can be stipulated that employees are not allowed to engage in similar business within two years after leaving the company and a penalty for breach of contract should be agreed upon.

When it comes to suppliers and partners, it is essential to pay close attention to the intellectual property clauses in the contract. Moreover, it is crucial to be vigilant against reverse engineering after obtaining the technology. Strict regulations must be stipulated in the contract. If the contract is not standardized or there is negligence during the technology authorization process, the potential loss could be an entire region or even the market of an entire country.

In a case I handled, the client was a Swedish company that provided lane lines for almost every Olympic Games or international swimming event. In 2008, it signed an agreement with a certain sports company that is now listed on the stock market. Not only did it provide molds but also assigned engineers to offer technical guidance. However, when authorizing, it failed to isolate the key technologies. After the cooperation ended, although the Swedish company retrieved the molds, the sports company made minor modifications to the key molds and reverse-engineered them, not only capturing the market but also reaping huge profits. The lesson from this case is that if an enterprise has the intention to go global, it must make patent layouts in advance.

Strict management + technical protective measures

For strict management, access permissions should be set for core documents, encrypted software should be used, experimental data should be uploaded to an encrypted server in real time during research and development, isolation manufacturing should be carried out in the production stage, devices should be retrieved from employees when they leave (checking if the devices have been backed up), and employees should be required to sign a "Confirmation of Technical Integrity".

For technical protective measures, digital watermarks can be used to track on the drawings, invisible identifiers can be embedded in the drawings and codes, and blockchain evidence storage technology can be used to solidify the R&D records.

In a case handled by the author, Ye was a senior employee of Company A. After leaving Company A, Ye, as the actual controller of Company B, established Company B. Ye's name could not be found in any of the surface registrations of Company B. Ye then split the technology of Company A and applied for new patents respectively.

This is a patent of Company A, with an application period from 2015 to 2023.

This is a patent of Company B, with the application period from 2023 to 2024.

Of course, the author has simplified this case. In fact, Ye established Company A' as an intermediary between Company A and Company B. The case is still in progress, with preparations being made for criminal charges against Company B and applications for invalidating the patent. The lessons from this case, apart from the previously mentioned need to protect a company's core technology to prevent theft, also include the importance of applying for substantive patents for core technologies, not just for authorization but for long-term substantive protection. This part will be elaborated on later.

(3) Patent Protection

According to Article 2 of the Patent Law:

Invention refers to a new technical solution proposed for a product, a method, or an improvement thereof.

A utility model refers to a new technical solution proposed for the shape, structure, or their combination of a product that is suitable for practical use.

Design, refers to a new design that is aesthetically pleasing and suitable for industrial application, made for the overall or partial shape, pattern or their combination of a product, as well as the combination of color and shape, pattern.

Patent protection is different from trade secrets. Patents are about exchanging public disclosure for monopoly. When applying for a patent, special attention should be paid to the core patent in the patent writing. This not only requires patent agents to conduct thorough searches but also demands proper communication between patent agents and technical personnel to ensure a thorough understanding of the creativity, novelty, and practicality of the technical solution. In the patent application documents, what patent agents pay the most attention to is the claims, especially the independent claims. The scope of protection written should not be too broad; otherwise, it may lose the three characteristics, leading to possible rejection later. The scope of protection should also not be too narrow; otherwise, even if it is authorized, it will be difficult to determine the infringement when encountering patent infringement later. In patent applications, the nature of the patent should be classified and laid out, such as:

It should be noted that even after a patent application is made, one cannot rest easy. To ensure the stability of the patent, it is important to note that a patent, despite being granted, may still be challenged for invalidation due to its instability.

The basis for the request for invalidation of the patent is Article 69, Paragraph 2 of the Implementing Regulations of the Patent Law (Revised Edition 2023). The reasons for the request for invalidation as mentioned in the preceding paragraph refer to the circumstances where the invention or creation for which a patent has been granted does not comply with the provisions of Article 2, Paragraph 1 of Article 19, Article 22, Article 23, Paragraph 3 of Article 26, Paragraph 4 of Article 26, Paragraph 2 of Article 27, Article 33 of the Patent Law, or Articles 11, Paragraph 2 of Article 23, and Paragraph 1 of Article 49 of these Implementing Regulations, or falls under the circumstances stipulated in Article 5 and Article 25 of the Patent Law, or cannot be granted a patent right in accordance with Article 9 of the Patent Law.

3.Split and flexibly combine

Based on case studies, research the patent layout of Xiaomi's automobiles.

As of May 2025, Xiaomi Auto Technology Co., Ltd. has been granted 2,089 patents. Among them, the proportion of published but ungranted invention patents is 36.14%, granted invention patents account for 26.64%, utility model patents make up 29.37%, and design patents account for 7.85%. Judging from the proportion of each category, it is of high quality.

Patent Application Year Trend of Xiaomi Auto Technology Co., Ltd.

Patent Publication Year Trend of Xiaomi Auto Technology Co., Ltd.

In fact, since 2012, Xiaomi has been exploring patents related to the Internet of Vehicles. On November 14, 2012, it applied for an invention patent with the application number CN201210458224.8, which is a method for controlling a vehicle, a control device, a mobile terminal and a system.

From the specific patent data available for query, it can be seen that Xiaomi has demonstrated a comprehensive layout and investment in the manufacturing of smart electric vehicles. The patents cover multiple aspects such as technological attributes, vehicle safety, production efficiency, and user experience, and involve six major fields including motors, internal and external vehicle structures, autonomous driving and vehicle control, vehicle-mounted systems, battery technology, and factories and processes.

From the patent applications of Xiaomi's automobiles, it can be seen that patents require long-term planning. For the protection of the entire core technology, one must have a flexible mindset and not be confined to rigid rules and boundaries. In practice, these protection schemes can be flexibly combined. Core technologies are often composed of several specific technical solutions. In practice, a complementary strategy of patents and trade secrets can be adopted, dividing the technology into patentable parts and trade secret parts. Among the patents to be applied for, they can be further divided into core patents that protect the essence of the technology; peripheral patents that cover application scenarios; and defensive patents that block competitors' technological routes. Adopting a flexible division, quality-first, layout-first, and offensive and defensive combination strategy can safeguard the technological protection of enterprises.

4.Conclusion

To help readers better understand trade secrets and patents, the author uses a common example from daily life - hot pot - to illustrate. A trade secret is like the secret recipe of a hot pot restaurant's base sauce. If consumers want to taste its unique flavor, they have to dine in the restaurant. This unique taste is highly attractive, but when consumers try to replicate it at home, they often fail. This unique base sauce is the trade secret of the hot pot restaurant, carefully protected by the operator and a key to the restaurant's continuous profit and development. However, its drawback is that once the recipe is leaked or successfully replicated and made public, this profit-making secret loses its uniqueness, and this consequence is irreversible.

Patents are like the "hot pot base" sold in a specialized store with exquisite packaging. Consumers need to pay for it before taking it away, and they have to go to the store again to buy it when it is used up. The limitation is that the store operation needs to pay "rent" to "Mr. Juice" every year, and the store lease is not permanent. To promote technology sharing, "Mr. Juice" will set a time limit. Once the time limit is over, other merchants can sell this hot pot base. However, although patents have certain limitations, they also have irreplaceable advantages - within a specific time range, even if others can make exactly the same hot pot base, they are not allowed to sell it in other stores. The right holder can operate with peace of mind during this period.

Thank you all for your patience in reading. This article only provides a framework introduction to intellectual property protection. In fact, the construction of intellectual property defense barriers also covers trademarks, copyrights, and other aspects. Subsequently, the author will publish a series of related articles. Although each article is part of a series, they are all independent and self-contained. The judicial cases, legal provisions, and industry data cited in the article are all publicly available information and have been marked with their sources.